AML Levy and Guidance for Legal Sector
The solicitors’ regulator agrees with government that regulated firms should contribute towards the costs of tackling money laundering, by way of a levy. The levy has not yet kicked in but long-awaited guidance on anti-money laundering (AML) has now been published for the legal sector.
The government said, in a consultation paper last year, that “it is fair that those whose business activities are exposed to money laundering risk pay towards the costs associated with responding to and mitigating those risks”.
It added that the regulated sector “stands to benefit directly from certain specific improvements set out in the economic crime plan”. But while the Solicitors Regulation Authority (SRA) supports a levy for all law firms (though conceding that the collection costs from smaller firms might outweigh the benefits), the Law Society strongly opposes an AML levy.
It’s the Society’s position that law firms already play an important role in tackling money laundering, as demonstrated by the substantial costs and resources allocated by the profession to comply with its AML and financial crime obligations. It says a levy would be harmful to the profession and damaging to its international reputation should the UK start taxing solicitors.
So what’s next? The government has yet to make a final decision but it seems determined to press ahead.
New guidance
In the meantime, much-anticipated AML guidance from the Legal Sector Affinity Group (yet to be approved by HM Treasury) for the legal sector has just been released, which firms should consult in their efforts to comply with the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (as amended).
The updated guidance (replacing the Law Society’s previous AML practice note) covers new areas including further guidance on source of funds and source of wealth and on risk assessments; high risk areas/jurisdictions and clients with cash-intensive businesses; and, unsurprisingly, new guidance on technology.
No one element on its own may be a red flag and the guidance makes clear that “risk is a judgement relying on considering multiple factors holistically”. A single factor might not automatically make a matter or a client high risk in and of itself - all the risk factors should be taken together to inform whether a matter or client is deemed high risk.
Notably, on the topic of risk assessments, the guidance sets out two key levels:
· Practice-wide risk assessment;
· Client level risk assessment; and
· Matter risk assessments.
Why is this so important? The guidance states: “The assessing of money laundering and terrorist financing risk is an important requirement of the Regulations and a vital step in protecting your practice.”
The guidance sets out the steps firms, particularly their MLROs and MLCOs, should take. Though the guidance is lengthy (at more than 200 pages) and detailed, it is punctuated by useful diagrams and infographics which will make it easier for firms to assimilate.
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